Cars / Pay in cash or get car financing
P
May 24, 2022
Pay in cash or get car financing
I can buy a used car I like for $10k. I can pay for it in cash but prefer not to. I'd rather save some of it in a savings account or something Some of my friends are saying to get some financing to help my credit score which is around 680-700 right now. What would you do? Thanks!
Replies (4)
May 24, 2022
@Priya8CD, I asked a similar question in a previous post on how to prioritize goals and here is my attempt to pass along what I learned for what it is worth. Have you checked what the interest rate on the auto loan would be? If it's anything below what inflation is it may be worth financing some amount but not all of the 10,000. The value of your dollar can buy more goods today than it can tomorrow so if you lock in a good interest rate now, you're locking in a fixed cost while inflation continues to eat away at your cash sitting in a bank account. So say something like $2-5,000 financing and the remaining in the Series I bond that is yielding close to 10% right now for the next 6 months (and then it will adjust again in Nov based on what the inflation figures show then) - this money should be for savings you don't need for at least a year.
P
Jun 11, 2022
@XavierWD4, Thx for your help! Yes, the rate is around 5.5%. Haven't purchased yet.
May 24, 2022
@Priya8CD, If you do get financing and pay on time every month, your credit score will start climbing - primarily because of payment history and also credit mix. You get rewarded for having different types of credit/loans. But you can get seriously dinged if you aren't responsible in paying on-time. Usually I'd say cash all the way but we are in an outlier (or so it seems) situation that it could work to your advantage if you did finance some portion of this. I'll also disclaim this is based on what you shared here, and of course every one of our situations are unique and complex right? 😆
P
Jun 11, 2022
@John971, Good point about the credit score improving. I hadn't thought of that. I'll definitely be financing some portion of it. I don't want to wait too long because I keep hearing rates are going up.